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China’s factory, consumer sectors stumble on COVID-19 disruptions

China’s factory and retail sectors faltered in August with output and sales growth hitting one-year lows as fresh coronavirus outbreaks and supply disruptions threatened the country’s impressive economic recovery.

Industrial production rose 5.3% in August from a year earlier, narrowing from an increase of 6.4% in July and marking the weakest pace since July 2020, data from the National Bureau of Statistics showed on Wednesday. Output growth missed the 5.8% increase tipped by analysts.

Consumer spending also took a big hit from rising local COVID-19 cases and floods with sales rising only 2.5% in August from a year ago, much lower than the forecast 7.0% rise and the slowest clip since August last year.

“Recent economic data reflected the overall demand is still weak in the economy, vulnerable to sporadic COVID-19 outbreaks, but some sectors have been overheated, judging from the persistently high commodity prices,” said Nie Wen, Shanghai-based economist at Hwabao Trust.

“Policymakers will face a dilemma in terms of how to respond to a situation like this.”

Supply chain bottlenecks, semiconductor shortages, curbs on high-polluting industries and the crackdown on the property sector have disrupted activity in the world’s second-biggest economy.

China’s vehicle sales slid in July for a third consecutive month, partly driven by the global auto chip shortages.

Some steel producers in China’s Jiangsu, Fujian and Yunnan provinces were told by the government to cut production as the country aims to curb industrial pollution.L1N2QC0CF

The Chinese economy made a remarkably strong revival from last year’s coronavirus-led slump, but momentum has slowed over the past few months, raising expectations that policymakers may need to roll out more support to help a struggling economy.

Social restrictions due to the COVID-19 Delta variant in several provinces have hit the catering, transportation, accommodation and entertainment industries.

China’s services activity slumped into contraction in August, a private-sector survey showed, as restrictions to curb COVID-19 once again closed shopping malls and many businesses in parts of the country.

KFC operator Yum China Holdings Inc 9987.HKYUMC.N said on Tuesday its adjusted operating profit would take a 50% to 60% hit in the third quarter as the spread of the Delta variant in China closed restaurant and “sharply reduced sales”.

“We had been expecting services activity to rebound strongly in September as the virus situation was back under control,” said Julian Evans-Pritchard, Senior China Economist at Capital Economics. However, he added fresh outbreaks in the southern Fujian province may hold back the recovery.

China’s property investment in August rose 0.3% from a year ago, the slowest pace in 18 months, while growth in new home prices eased an eight-month low, as an official crackdown on speculative purchases hit demand.

Evans-Pritchard said while near-term virus-linked disruptions should prove temporary, the property sector curbs and slowing exports could weigh on longer-term growth.

Fixed asset investment grew 8.9% in January-August from the same period a year ago, compared with a 9.0% rise tipped by a Reuters poll and a 10.3% increase in January-July.

Analysts are expecting China to quicken spending on infrastructure projects later this year.
Source: Reuters (Reporting by Liangping Gao, Gabriel Crossley and Stella Qiu; Editing by Sam Holmes)

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